Personal Finance Tips for 2012

Starting to save in your 20s will give you a huge leg-up. That’s not to say it will always be easy. But by starting now, you definitely have a chance to buy a house or another big-ticket item! Whether you’re in your 20s or well beyond, there’s no magic bullet when it comes to saving. It’s about setting realistic goals, prioritizing how you’ll manage your money — and sticking with it. Here are some ideas to get you going.

Cover the basics first. Whatever your personal savings goals, it’s important to first set a financial foundation. That includes three important things: retirement savings, getting out of debt and creating an emergency fund — in that order. Here’s what I suggest:

• If your employer offers a 401(k) or similar retirement plan with a company match, start contributing at least enough to get the match. Let’s say your company offers a 5 percent dollar-for-dollar match. If you contribute at least that much of your annual salary, you’ll be doubling your savings. It’s like getting paid to save. Plus, you won’t be taxed on that money until you withdraw it. And because it automatically comes out of your paycheck, it’s pretty painless.

• Pay off credit cards or other high-interest, nondeductible debt. While credit cards make life easy, carrying a balance costs you money. Do your best to pay off your debt now — and save yourself the 13 percent or whatever interest rate you’re paying. You’ll then be able to put that extra money toward savings. (Note: Student loans generally don’t fall into this category since they tend to be low-rate and the interest can be tax deductible; just make sure you never miss a payment.)

• Create an emergency fund. You never know when you’ll hit a bump in the road, so try to keep at least three months’ living expenses in a savings or money market account. This way you won’t get financially derailed should you get sick or lose your job.

• Focus on your personal goals. With this foundation in place, you can focus on other goals. Start by making a list. What’s most important to you? If a house is your No. 1 priority, take a look at your budget and decide how much you can put toward a down payment each month. Open a savings or brokerage account dedicated to that goal and set up an automatic monthly payment from your checking account. That’s one of the easiest ways to stay on target. (In fact, putting as much as you can on automatic — rent, utilities, credit-card payments — will help you stay on top of your finances.) Treat other goals the same way. Here’s a tip to make it easier: Think of saving as an essential monthly expense — even if you have to cut back on nonessentials like dining out or buying the latest clothes — and pay yourself faithfully every month.

• Keep your eye on the future. While right now saving for a house probably seems more urgent than retirement, as your income grows, consider either increasing your 401(k) contributions or opening an IRA. (If you don’t have an employer-sponsored plan, move this IRA contribution up to the No. 1 spot.) If you put just 10 percent of your annual income toward retirement starting now and save that percentage each year during your working life, you’ll be on your way to a pretty sound financial future. Now, more than ever, people are responsible for their own retirement. I can’t stress enough how important it is to start saving early.

• Learn about investing. Saving is one thing, but growing your money is another. Even in volatile times like these, investing — especially long-term investing — offers the best growth potential. As soon as you’re comfortable with your savings plan, consider opening a brokerage account and investing in something like a broad-based equity mutual fund or exchange-traded fund (but only with money you won’t need for the next three-plus years). Parents or another experienced investor could be a good source of information. You can always look online. You could even make an appointment with a broker who can help you get started. Just keep in mind that investing does involve risk, including the possible loss of your principal; that’s the price you pay for the potential to earn more than you would in a savings account.When it comes to saving, the mistake many people make is trying to do everything at once, then getting frustrated and giving up. But if you go step by step and stick with your plan, I believe you’ll have a chance to meet your goals — and then some. Good luck!